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Commercial Landlord and Tenant Relations During COVID-19
The coronavirus (COVID-19) continues to wreak havoc on many commercial landlords and tenants in Florida, as tenants are unable to pay rent or request rent relief of some form or another. With the economic pressures commercial tenants are facing because of shelter-at-home orders and COVID-19’s effects on the general economy, the risks of tenants failing has drastically increased.
According to a March 30th survey by the National Federation of Independent Business, 92% of small employers have been negatively impacted by the pandemic. Furthermore, only approximately half of the employers surveyed can survive more than two months under the current conditions. Landlords are faced with trying to be as accommodating as possible to tenants while facing their own financial difficulties because of the fixed costs associated with real estate including mortgage payments, maintenance, taxes and insurance. This article is intended to give commercial landlords and tenants general items to consider to best determine a course of action in light of the pandemic.
Before attempting negotiations with a tenant or taking other actions, landlords should consider seeking the following type of information from tenants as a means to determine the effects of COVID-19 on their businesses: (1) financial statements for 2019 and year-to-date 2020; (2) financial projection for the remainder of 2020 including statements on whether they believe business will return as usual after shelter-at-home orders are lifted; (3) a summary of governmental assistance that the tenants have applied for or intend to apply for including the Paycheck Protection Program and Economic Injury Disaster Loan; (4) the tenant’s strategy and plan for addressing the business impact of the coronavirus; and (5) a statement of the tenant’s plan to pay or withhold rent. Commercial tenants should be prepared to provide this information as well as a summary of how their specific business is being affected by the coronavirus and related governmental orders.
When engaging in negotiations, landlords should consider the following:
- Whether to obligate the tenant to keep negotiations and documentation between the landlord and tenant confidential.
- Related governmental orders and their effect on individual tenants.
- The ability to replace a tenant in the current economic environment including the ability to retake possession, market and build out the premises in light of governmental restrictions.
- Any outstanding debt instruments tied to the property should be reviewed in case notice or consent of landlord’s lender is required prior to making changes to a lease. In addition, loan covenants should be carefully reviewed.
- Requesting loan relief from their lender.
- Monetary changes to the lease including modified rent schedule, rent abatement or rent deferral.
- Non-monetary changes to the lease such as removing tenant use restrictions, tenant’s waiver of claims against the landlord while services are not in place due to new restrictions, and lifting certain sign restrictions.
During this time, it is more essential than ever for landlords and tenants to have a working relationship. It is the interest of the landlords that their tenants are fully aware of the relief programs available to them. However, that does not mean that either party should rely on “handshake deals” or oral agreements. It is critical that any changes to the lease and agreements are memorialized in writing in compliance with the terms of the lease and any related loan documents. Furthermore, any defaults should be properly noticed under the terms of the lease to preserve the parties’ rights in case negotiations fail.
If lease negotiations fail and a landlord determines that retaking the premises is in their best interest, the landlord needs to be cognizant of the ever-changing court operations and the availability of eviction remedies. Court closures and limited operations may seriously curtail eviction remedies available to a landlord. On April 2, 2020, Governor DeSantis signed Executive Order 20-94, which suspended residential evictions and foreclosures for 45 days; however, the moratorium has not been extended to commercial tenancies and properties. On March 24, 2020, the Florida Supreme Court issued an emergency order temporarily suspending the requirement that the clerk issue a writ of possession “forthwith” and on April 6, 2020 extended the order through May 29, 2020. The availability of process servers, sheriff deputies and court personnel can result in abnormal delays that can leave a landlord without recourse if the tenant uses the time to remove fixtures or equipment from the leased premises. The possible delays and the landlord’s ability to lease and prepare the premises for a new tenant should be carefully weighed and thoroughly considered.
Rossway Swan’s real estate attorneys frequently represent landlords and tenants in lease negotiations and lease disputes. If you need assistance understanding your rights and obligations under a lease or loan documents or are considering modifying a lease in light of the pandemic, we are here to help.
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